Glitch halts trading on Nasdaq for 3 hours

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News of the Nasdaq’s problems was displayed on an electronic board in Times Square in New York City.

By Nathaniel Popper
New York Times
August 23, 2013

NEW YORK — The US stock market showed again Thursday that it remained vulnerable to technological breakdowns even as regulators and market operators work to keep up with trading that is increasingly electronic and driven by speed.

The latest trouble shut down trading on the Nasdaq market and its more than 3,000 stocks — including some of the most popular among investors, like Apple and Google — for more than three hours Thursday afternoon.

The disruption on the nation’s second-largest stock market, after the New York Stock Exchange, reverberated up and down Wall Street, affecting other markets as investors cautiously stepped back. Brokers scrambling to trade elsewhere discovered they could not complete trades while in the dark about prices on Nasdaq.

“It is everybody — nobody can trade,” Manoj Narang, chief executive of Tradeworx, said during the afternoon. “I’ve never seen anything like this.”

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Two days earlier, Goldman Sachs accidentally sent out a barrage of errant trades that disrupted the exchanges where options are bought and sold. The two episodes have amplified questions about the reliability and integrity of financial markets that companies depend on to raise money and Americans trust with their retirement savings.

More than a year ago, the eagerly awaited market debut of Facebook shares was marred by a delay and technical problems. In May 2010, computer malfunctions were blamed for the “flash crash” when a flurry of stocks plunged to $1 or less and the Dow Jones industrial average plummeted more than 700 points in a matter of minutes.

While regulators and market participants have taken several steps to strengthen their systems, the problems this week suggest that the flaws in the markets have not been repaired, and may actually be getting worse.

“You have a very Rube Goldberg system,” said Gene Noser, cofounder of the brokerage firm Abel/Noser. “We’ve just put patches on it without attacking the basic problems.”

The persistence of technical flaws — each seemingly coming from a different part of the system — has been blamed on the complexity of the trading technology and the fragmentation of the market itself. In contrast to the days when the New York Stock Exchange competed only with the Nasdaq, today there are 13 public exchanges competing in a fast-changing and low-margin business.

The frustrations over the breakdowns represent an immediate challenge for the regulatory agency that oversees the stock markets, the Securities and Exchange Commission, and its new chairwoman, Mary Jo White.

Thursday evening, White said in a statement that the paralysis at Nasdaq was “serious and should reinforce our collective commitment to addressing technological vulnerabilities of exchanges and other market participants.”

She said she would push ahead with recently proposed rules that would add testing requirements and safeguards for trading software. So far, those rules have faced resistance from the exchange companies. White said she would “shortly convene a meeting of the leaders of the exchanges and other major market participants to accelerate ongoing efforts to further strengthen our markets.”

During the halt, trading firms across Wall Street struggled to determine what to do with orders for Nasdaq-listed stocks.

“There is no transparency for investors at this point,” David Warhoftig, managing director of Highside Capital Management, said during the halt. “We were able to potentially get a few trades done when this first started, but now we are not able to do anything.”

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